Shah Panel says RIL’s production of ONGC's gas was unjust enrichment

The panel has said RIL’s actions had no lawful justification because RIL did not approach the government seeking joint development of the contiguous areas of the blocks. It has said govt is entitled to restitution from RIL.

New Delhi: The high-level Shah Panel set up to look into the gas migration row between Reliance (RIL) and Oil and Natural Gas Corp (ONGC) has said the private explorer’s production of gas migrated from ONGC’s blocks amounted to unjust enrichment that was unfairly retained.

The panel, headed by A P Shah, former Chief Justice of the Delhi High Court, has said RIL’s actions had no lawful justification because RIL did not approach the government seeking joint development of the contiguous areas of the blocks and also because it had not been given the migrated gas as a gift or largesse. It said the government, and not ONGC, is entitled to restitution from RIL or the benefit it gained.

ETEnergyWorld was awaiting responses from an RIL spokesperson on the report through a detailed email questionnaire at the time of publishing this report. RIL had earlier stated it has "scrupulously followed every aspect of the production sharing contract and has confined its petroleum operations within the (boundaries of its) KG-D6 block" in Krishna Godavari basin. Initially, RIL and its partner Niko had questioned the constitution of the panel and stayed away from participating in its proceedings. Both the companies changed their decision and participated with the enquiry of the panel later.

The panel has also said, in its 110-page report submitted to oil minister Dharmendra Pradhan today, that ONGC is not entitled to claim any restitution from RIL for the unjust benefit it received and unfairly retained. “ONGC has no locus standi to bring a tortious claim against RIL for trespass/conversion since it does not have any ownership rights or possessory interest in the natural gas,” the report, reviewed by ETEnergyWorld, states.

The Committee said RIL’s production of migrated gas and retention of the ensuing benefits amount to unjust enrichment, since the Production Sharing Contract (PSC), in the absence of an order on joint development under Article 12, does not permit a contractor to produce and sell migrated gas. It added there is also no other extra-contractual right granted to the contractor that enables it to produce gas, regardless of its source. In fact, a contractor is limited by the gas that is available in its clearly defined and demarcated contract area.

“In the present case, Articles 10.15 and 11.2 of the PSC functioned as a prohibition on the unilateral production of migrated gas, and the only remedy (exception) available to the contractor was to approach the government and get an order for joint development. Since RIL did not pursue such a step, and it had not been given the migrated gas as a gift or largesse, its actions had no lawful justification and amounted to unjust enrichment,” the Shah panel report states.

The Committee also said it is unable to draw final conclusions regarding RIL’s and ONGC’s prior knowledge (of reservoir continuity), without any evidence being led before it. However, it made another important observation. “The Committee finds that the 2003 Appraisal Report prima facie reveals that RIL had prior knowledge about connectivity and continuity of reservoirs. It also appears that RIL did not bring the contents and findings of the 2003 Appraisal Report to the notice of DGH, which is particularly disconcerting,” the report states.

The panel also noted that the question of quantification of unfair enrichment is to be decided by the government, with the principle that whatever benefit RIL received in terms of the migrated gas is liable to be returned to the government. Oil minister Dharmendra Pradhan today said the government will take an appropriate action based on the report within a month.